INTRODUCTION TO

ORGANISATION
THEORY
What is an Organization?
 An organization is a tool used by people
to co-ordinate their actions to obtain
something they desire or value-that is
to achieve their goals.
 People who value security create an
organization called Bank, Police force or
an army.
 People who value entertainment create
organizations such as Walt Disney
Company.
 People who desire emotional or spiritual
support create churches, social service
organizations or charities.
 Organization is a response to and a
means of satisfying some human need.
 New organizations are formed when new
technologies become available and new
needs are discovered.
 Organizations die or are transformed
when the needs they satisfied are no
longer important or have been replaced
by other needs.
Who creates the organizations
to satisfy people`s needs?
 Sometimes, several people form a group
to respond to a perceived need by
creating an organization.
 That is, sometimes an individual or a few
people believe they possess the
necessary skills and knowledge and set
up an organization to produce goods
and services.
 So, entrepreneurship is the term used to
describe the process by which people
recognize opportunities to satisfy needs
and then gather and use resources to
meet those needs.
How does an organization
create value?
 Value creation takes place at three
stages: input, conversion and output.
 Each stage is affected by the
environment in which the organisation
exists.

 Inputs: Human resources,information and
knowledge, raw materials,money and
capital.
 The way an organisation chooses and
obtains from its environment the inputs
needed to produce goods and services
determines how much value the
organisation creates at the input stage.
 The way the organisation uses human
resources and technology to transform
inputs into outputs determines how
much value is created at the conversion
stage.
How Mc Donalds Create
Value
 Raw materials(ground beef, sandwich
buns,potatoes,milk-shake mix etc)
 Human Resources(Cooks, order takers,
managers)
 Information and Knowledge-Training,
knowledge of fast food industry)
 Money and capital(Share holders
investments)
 Customers.
Mc Donald`s Conversion
process
 Machinery(toasters, milk-shake machines)
 Computers(Computerised cash registers,
ordering systems,inventory tracking)
 Human Skkills and abilities(Personnel
trained in sandwich preparation,
ordering, potato frying, overseeing the
whole operation)

Mc Donald`s Environment-Sale
of outputs to customers
 Satisfied customers
 Potential Customers
 Suppliers of meat,potatoes,milk-shake
mix.
 Population from which to choose
employees.
 Government regulations
 Competitors(Burger King)
Mc Donald`s Outputs. Released
to its environment.
 Fast and cheap food.
 Satisfied customers
 Satisfied shareholders.
Why organisations exist.
 To increase specialization and division of
labour.
 To use large scale technology.
 To manage the external environment
 To exert power and control


 More value can be created

when people work together co-
ordinating their actions in an
organised setting, than when they
work alone.
What is organization
structure?
 Organization structure defines how task
are to be allocated, who reports to
whom and the formal co-ordi the Life-
Cycle Perspective. nating mechanisms
and interaction patterns that will be
followed.
 Organization structure is having three
components.
 Complexity, Formalization and
Centralization.
Complexity:
 Complexity considers the extent of
differentiation within the organisation.
 It includes the degree of specialization or
division of labour, the number of levels
in the organization's hierarchy and the
extent to which the organization's units
are dispersed geographically.
 Infosys is an example for complexity.
Formalization
 The degree to which an organization
relies on rules and procedures to direct
the behaviour of employees is
formalisation.
 Some organisations operate with a
minimum of such standard guidelines.
Centralisation
 Centralization considers where the locus of
decision making authority lies.
 In some organisations decision making is
highly centralized.
 Problems flow upward, and the senior
executive choose the appropriate action.
 The organisation tend to be centralised or
tend to be decentralised.
 The placement of the organisation in this
continuum, is one of the major factors in
determining what type of organisation
exists.
Organisation Design
 Organisation Design emphasises the
management side of Organisation
theory.
 Organisation theory is concerned with
constructing and changing an
organisation`s structure to achieve the
organisation`s goals.
Organisation Theory
 It is the discipline that studies the
structure and design of organizations.
 It describes how organizations are
actually structured and offers
suggestions on how they can be
constructed to improve their
effectiveness.
Systems Perspective to
Organisation
 A systems perspective offers important
insights into the working of an
organization.
 A system is a set of interrelated and
interdependent parts arranged in a
manner that produces a unified whole.
 Societies are systems, and so too are
automobiles, plants, and human bodies.
 They take inputs, transform them, and
produce some output.
 Organizations have divisions,
departments, and units to perform
specialised activities.
 In order to maintain unity among the
differentiated parts and form a
complete whole, every system has a
reciprocal process of integration.
 In organisations, this integration is
typically achieved through devices such
as co ordinated levels of hierarchy;
direct supervision,rules, procedures and
policies.
 Every system therefore requires
differentiation to identify its subparts
and integration to ensure that that the
system doesn`t break down into
separate elements.
Types of Systems.
 Closed System
 Open System
 The closed system perspective has little
applicability to the study of
organisations.
 The open system recognises the dynamic
interaction of the system with its
environment.
 Example- Banking System- Interacts
actively with its environment, which is
made up of people with savings to
invest,other people in need of loans,
potential employees looking for work,
regulatory agencies and the like.




Characteristics of an open
system
 1. Environmental Awareness-
 The interdependency of a system and its
environment was highly visible in the
early 1980s when Chrysler corporation
was under trouble.
 Infosys, Wipro, TCS and HCL entirely
changed the software development and
delivery environment when they
entered the information services
business in the US.
 Feedback-Open systems continually receive
information from their environment. This
helps the system to adjust and allows it to
take corrective actions to rectify deviations
from its prescribed course.
 We call this as environmental information
feedback , that is a process that allows a
portion of the output to return to the
system as input(Information or Money) so
as to modify succeeding outputs from the
system.
 Ex. Chrysler.
 Cyclical Character-Open systems are
cycles of events.
 Negative entropy-The term entropy refers
to the propensity of a system to run
down or disintegrate.
 An open system can repair itself, maintain
its structure, avoid death, and even
grow because it has the ability to import
more energy than it puts out.
 Steady State.
 Movement towards growth and
expansion.
 Equifinality-A system can reach the same
final state from differing initial
conditions and by a variety of paths.
 That is, it is necessary to consider a
variety of solutions to a given problem
rather than seeking some rigid optimal
solution.
Importance of systems
perspective
 The systems concept permits to see the
organisation as a whole with
interdependent parts-a system
composed of sub-systems.
 It prevents managers from viewing their
jobs as static, isolated element of the
organisation.
 It encourages all managers to identify
and understand the environment in
which their system operates.
 It provides insights into why organisations
are resistant to change.
 It directs managers attention to
alternative inputs and processes for
reaching their goals.
The Life-Cycle Perspective
 The implication of Life-Cycle perspective
to management is that the continual
introduction of new products is required
if the organisation is to survive over the
long-run.

Life- Cycle Stages.
 Entrepreneurial stage-The organisation is
in its infancy. Goals tend to be
ambiguous. Creativity is high. Progress
to the next stage demands acquiring
and maintaining a steady supply of
resources.
 Collectivity Stage-This stage continues
the innovation of the earlier stage, but
now the organization's mission is
clarified. Communication and structure
within the organisation remains
especially informal.
 Members put in long hours and
demonstrate high commitment to the
organisation.
Formalization and control
stage
 The structure of the organisation
stabilises in the third stage.
 Formal rules and procedures are imposed.
 Innovation is deemphasized.
 Decision makers are now more
entrenched, with those in senior
authority positions in the organisation
holding power.
 Organisation exists beyond the presence
of any individual.

 Roles have been clarified so that the
departure of members causes no severe
threat to the organisation.

Elaboration of Structure-
Stage.
 The organisation diversifies its products
or services markets.
 Management searches for new products
and growth opportunities.
 The organisation structure becomes more
complex and elaborated. Decision
making is centralised.
Decline Stage
 As a result of competition, a shrinking
market or similar forces, the
organisation in the decline stage finds
the demand for its products or services
shrinking.
 Management looks for ways to hold
markets and look for new opportunities.
 Employee turnover will increase.
 Conflicts increase within the organisation.
 New people assume leadership in an
attempt to arrest the decline.

 Decision making is centralized in this new
leadership
 Do all organisations proceed through the
five stages?

 Do the life cycle stages correlate with the
organization's Chronological age?
 Some organisations have reached stages
three and four in less than five years
after being formed, while others are
fourty years old and still in their
collectivity stage.
 The management of Apple has explicitly
stated a commitment to try to remain in
stage two as long as it can.
Importance of the Life-Cycle
Perspective.
 The Life-Cycle Perspective is valuable
when we consider what management
can do make an organisation more
effective.
 The solutions that are appropriate for a
given problem when the organisation is
growing may be very different if that
problem occurs in the decline stage.